So by now we all are aware with what is debt consolidation… If not than in short it’s a big dollop of whipping cream on your ice cream. Now you must be wondering that it must be something heavenly sweet. Well you can say it is for those who are battling the devil’s advocate against endless piling of debts. Its basically an adoption of one big loan which covers your many other debts from various creditors. It consolidates into one and your left paying off one loan’s repayments and one interest rate. So for those screaming hellishly under the layered debts that they have laid for themselves is a path to redemption and ease. 
However, one should also be aware that many people can get debt consolidation wrong too. You need to know your procedures and directions well when applying for debt consolidation loan. You wouldn’t want to run into more problems at this point when you have to surface the debts and find a solution. So following are some moves which even in your nightmare should not be attempted while equipped with a consolidated loan.
Hard-money loan
For many it may seem an easy road to debt free life. But the catch here is a hard one to hit. Usually people are attack by consolidators who have missed a couple of their payments and have ended on the wrong side of the creditors’ favorability. Some people don’t have the heart to handle the harassments and feebly give up to the consolidators. What one should keep in mind is that though consolidation loans gather up all your debts and compile them into one. At times this can turn out to be costly for some.
How so? Well before your payments where smaller but too many in number but their interest rates were relatively low. In consolidation loan since it is ne big loan you will end up being charged a high interest rate of either 20% or 21%. You may start off with a low monthly payment but end up giving more than you dreamed.
Claims that all will be well
Though the agent may take your hand and look into your eyes and make big promises that in no time will you be debt free. They entice you and trick you into small monthly payments and lowered interest rate but to the end of the payments you are hit hard. And so those promises are nothing but fade into a distant light.
The truth is that they bank of from the money you pay to them to be paid to the creditors. They usually keep up to 10% of our monthly payments and when they make payments to the creditors they make money from their too. C’mon even the creditors are happy that they are finally being paid for their loans.
From there they make about 10%-15%. Another thing which should be kept in mind that even these consolidators are human; they are also known for making late payments or even miss payments. This can worsen your credit score and drive you down to even a darker road. So while you can do all this by yourself and that to on lowered interest rate.
Balance transfer trap
Low interest balance transfer cards are a rare treasure to be found now, but once found be careful and wise to use it otherwise it can make you look like a worse risk. People opt for them to benefit from the low interest rate but once over you have to move on to another card. As you leap peacefullylike frogs from one lily to another keep in mind that these activities appear on your credit report. Make sure as you swing from one rope to another once done with one remember to close your accounts with those creditors.
Look on the brighter side
Don’t lose all hope now, there are some good moves one can find with debt consolidation. They are as follows:
- Take out a home equity loan
- Perform a cash-out refinancing
- Refinance a car
- Get a personal loan
- Negotiate better terms
- Other alternatives means contacting with organizations like National foundation of Credit Counseling.
So keep in mind that no service is an angel and no company is set up for your well-being. They are also in business to make profits and sustain the competition. Debt consolidation is not for everyone, therefore compare and understand your current financial situation. Weigh out your other alternatives and check to see whether this is the best one for you. Last but not least consult your financial advisor, friends and family.
